[EDITORIALS]Perils of housing price meddling

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[EDITORIALS]Perils of housing price meddling

The government has decided to lower the sale price of apartments to be built in Pangyo new town. The idea is that the unit sales price per pyeong (3.3 square meters) should be limited to around 15 million won ($14,610). The government worries that high sales prices will push up prices of existing apartments in neighboring Bundang and Yongin and result in snowballing speculative investment.
No one will oppose measures against speculative investment in real estate. But we have to keep in mind that real estate speculation can’t be prevented by the government imposing price limits. If sales prices are unreasonably pulled down, it will distort the housing market rather than stabilizing housing prices and is likely to fan the overheated market.
Housing developers estimate that even if the unit sales price reaches more than 20 million won per pyeong, they can sell all of the apartment units. Market demand is that strong.
If apartments worth 20 million won per pyeong are sold at 15 million won per pyeong, everybody will be eager to buy one. If only you draw a winning number that gives you the right to buy one, you grasp the chance to make some hundreds of millions of won profit from resale. The sales price of smaller units ― with a floor space of 112 square meters or less ― is to be set at 9 million won per pyeong. The popularity of such units will skyrocket, and people are already comparing winning the sales right of a unit to winning the lottery. If one can buy an apartment at half the market price, it is a great windfall.
An apartment sales policy that ignores market principles has already created a gambling place at Pangyo. The lower the sales price, the higher the marginal benefits from resale will go, and the stronger the temptation for speculative investment will grow.
Except in a government-controlled economy in socialist countries, the government’s attempt to intervene in the market and fix prices has never succeeded.
The power of the market makes money flow to where there are extra demands. Where there is high demand, the price naturally goes up.
Lowering the market price is only possible through increased supply. If such a flow is blocked by force, it will result in speculative investments that worry the government. Housing market stabilization is achievable through increased supply, not through lowering sales prices.
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